Dollar Moves Lower and Gold Rallies on US Trade Uncertainty

Rich Asplund Barchart Mon May 5, 2:47PM CDT
A one dollar bill floating in water by Wirestock via iStock

The dollar index (DXY00) Monday fell by -0.24% on uncertainty over US trade policy.  President Trump said on Sunday that he had no current plans to speak to Chinese President Xi Jinping, although Mr. Trump said there could be trade deals with some US trading partners as soon as this week.  The dollar recovered from its worst level on Monday after T-note yields rose when the US Apr ISM services index rose more than expected.

The US Apr ISM services index unexpectedly rose +0.8 to 51.6, stronger than expectations of a decline to 50.2.  Also, the Apr ISM services prices paid sub-index rose +4.2 to a 2-1/4 year high of 65.1, higher than expectations of 61.4.

The markets are discounting the chances at 2% for a -25 bp rate cut after Wednesday’s 2-day FOMC meeting.

EUR/USD (^EURUSD) Monday rose by +0.19%.  Monday’s dollar weakness supported mild gains in the euro.  Also, Monday’s Eurozone economic news showed that the May Sentix investor confidence index rose more than expected, which was bullish for the euro. 

The Eurozone May Sentix investor confidence index rose +11.4 to -8.1, stronger than expectations of -11.5.

Swaps are discounting the chances at 96% for a -25 bp rate cut by the ECB at the June 5 policy meeting.

USD/JPY (^USDJPY) Monday fell by -0.78%.  The yen moved higher Monday due to increased safe-haven demand on concern the US-China trade war will persist after President Trump said he has no plans to talk to Chinese President Xi Jinping.  Higher T-note yields on Monday were negative for the yen.  Trading in the yen was thinner than normal since the Japanese markets were closed on Monday for the Children’s Day holiday. 

June gold (GCM25) Monday closed up +79.00 (+2.44%), and July silver (SIN25) closed up +0.215 (+0.67%).  Precious metals prices on Monday settled moderately higher.  Monday’s weaker dollar was bullish for metals prices. Also, concern that the US-China trade war will persist is boosting safe-haven demand for precious metals after President Trump said he has no plans to talk with Chinese President Xi Jinping.  In addition, geopolitical risks in the Middle East continue to support safe-haven demand for precious metals as the Israel-Hamas and the US-Houthi conflicts continue.

Higher T-note yields on Monday limited the upside in precious metals prices.  Also, concern that the US-China trade war will weigh on global economic growth and industrial metals demand is negative for silver prices. 


On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.